Canada Markets

March Red Spring Wheat Tests Long-Term Support

Monday's low of $4.82 1/4/bu on the March hard red spring wheat contract is nearing a range of support from weekly lows which occurred over an almost one-year period in 2009 to 2010, as circled. Wheat markets are oversold, as seen in the middle study. The lower study shows the spread between the hard red spring and hard red winter contracts, trading largely flat over the past year. (DTN graphic by Nick Scalise)

The March hard red spring contract reached a fresh contract low of $4.82 1/4 per bushel in Monday's trade and partially recovered to $4.87 3/4/bu in today's trade. As indicated on the attached continuous active chart, this low takes prices to a test of support from a range of weekly lows seen between September 2009 and June 2010, ranging from $4.77/bu to $4.84 1/2/bu.

Investors continue to bet against the wheat markets, with the latest CFTC data as of Dec. 29 showing an increase in the net-short futures position held by investors or non-commercial traders across all three wheat markets (not shown). The data which sticks out is the 20% week-over-week increase in the net-short futures position of soft red winter wheat held by non-commercial traders. This position was reported at 75,365 contracts, the largest position since May and slightly below the net short position of 77,413 contracts held as of May 5, which was the largest net-short position reported in data going back to January 1986. This same report indicates investors in HRS increasing their net-short in HRS for the second straight week to the largest position held in six weeks.

With stochastic indicators in oversold territory, this market could face a sudden change in direction given a move by the non-commercial trader group, although the catalyst needed to trigger such a move seems out of sight at this time.

Global news is certainly not supporting any sudden move by investors. Dow Jones reported today that three vessels of French wheat are being delayed pending difficulties in Egypt in arranging for letters of credit to guarantee payment by Egypt's central-desk buying agency GASC. Egypt has faced dwindling reserves of foreign exchange for some time which has heightened risk for shippers.

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As well, making the news last week was the return by Argentina to the export market by scoring a wheat tender with Egypt, the first time in a few years. The recent change in government in Argentina has resulted in an elimination of export taxes, removal of a cap on exports along with actions to weaken that country's currency while making them more competitive in global channels.

Today's Prairie-wide basis was calculated at $1.20/bu over the March contract, for an average prairie bid of $6.08/bu or $223.31/mt. This is 7 cents weaker than calculated on Dec. 31, despite HRS reaching a fresh contract low on Monday and the Canadian dollar reaching more than a 12-year low on Tuesday. This could be signaling a slowing of demand from Canada's shores and bears watching.

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